Global authorities are tightening their grip on emerging financial sectors, evidenced by a significant shift in the regulatory landscape last year.
Report from Financial Times reveals that for the first time, crypto and digital payments companies racked up heavier fines than traditional financial institutions for lapses in compliance.
These fines, totaling $5.8 billion, were levied for deficiencies in customer due diligence, anti-money laundering controls, sanctions violations, and other financial crime risks.
This figure dwarfs the $835 million in fines paid by traditional financial services firms in 2023, marking the lowest level in a decade.
The sum includes a $4.3 billion penalty against cryptocurrency exchange Binance, issued by US prosecutors as a stark warning to the industry.
This landmark case underscores the heightened level of scrutiny directed toward crypto platforms and highlights the urgency for robust compliance measures within the sector.
Bad practice in newer corners of finance
Dennis Kelleher, chief executive of Washington-based Better Markets, which advocates for tighter regulation, said the figures were more reflective of bad practice in newer corners of finance than an improvement in traditional banks.
- “The pervasive fraud and criminality in the high-profile crypto arena forced regulators and prosecutors to divert resources,” he said, describing it as an attempt to “stop the egregious conduct and try to deter it from getting even worse”.
The data, compiled by compliance software provider Fenergo, showed that total fines for money laundering and other financial crime violations rose more than 30% to $6.6 billion, but remained well below the 2015 peak of $11.3 billion.
Annual tallies were heavily influenced by multibillion-dollar fines, such as last year’s against Binance, BNP Paribas’s $8.9 billion fine for sanctions violations in 2015, and Goldman Sachs’s $5 billion in 2020 over issues related to Malaysia’s 1MDB sovereign wealth fund.
Number of fines
The number of fines against crypto and payment providers increased significantly last year. Crypto firms recorded 11 fines versus an average of less than two a year for the previous five years, while payment firms incurred 27 fines against their average of about five a year from 2018 to 2022. Almost all of the payment groups fined last year were less than 20 years old.
- “Most jurisdictions have yet to regulate crypto firms in line with global standards, so we can expect further fines to come in this area,” said David Lewis, a former head of the Financial Action Task Force, the world’s money laundering and terrorist financing watchdog.
- “This lack of oversight and proper regulation is a real concern as the risks of cryptos continue to increase, and criminals seek to exploit loopholes wherever they can,” added Lewis, who is now head of anti-money laundering at advisory firm Kroll.
Andrew Barber, a partner at the law firm Pinsent Masons, said fines against crypto and payments groups could be even higher in future years as governments introduced new regulatory regimes.
- “Firms that historically operated without regulatory oversight will need time to adjust,” he added. “We can only expect the focus on these firms’ [anti-money laundering] controls to increase.”
Regulators in several jurisdictions have been warning payments firms to improve, with the UK’s Financial Conduct Authority last year chiding the “unacceptable” risks posed by the sector.
Fines likely to fall in the coming years:
Charles Kerrigan, a crypto specialist and partner at law firm CMS, said fines would likely fall in the coming years because crypto was already much more tightly controlled than it was in its infancy.
- “It’s got to a point now where law enforcement are openly saying they wish people would use crypto to commit crimes but you’d have to be mad to do that,” he added.
Kerrigan also said that crypto was not big enough to fuel significant levels of financial crime or to be a significant source of financial crime fines in the longer term. Its global market cap is just $1.8 trillion, compared with the hundreds of trillions of assets in the traditional financial system.
- “There will be fines because regulators want to make a point [about crypto],” he said.
Rory Doyle, head of financial crime policy at Fenergo, said fines against traditional financial institutions could rise again “as suspicious patterns begin to emerge” from dealings with Russian entities.
